Here's a thought experiment that will test your knowledge of which types of investments (asset classes) have produced the biggest gains for investors over the last 20 years. Imagine for a moment that you had invested $10,000 in one of 6 asset classes featured in this post. Did you choose the right one, or did you leave money on the table? Read on to find out the answer.
S&P 500
Your $10,000 turned into $70,500
10.1% CAGR (Compound Annual Growth Rate)
Pretty good return, but not the best of the bunch.
Gold
Your $10,000 turned into $38,000
7% CAGR
Well, at least you beat inflation! But a paltry return on your investment.
Oil (WTI)
Your $10,000 turned into $25,000
4.7% CAGR
20 years ago, the financial media was gushing with stories about "Peak Oil" and forecasting prices would go sky-high. It didn't work out that way.
Uranium
Your $10,000 turned into $50,000
8.5% CAGR
A respectable return, but definitely not the winning asset class.
Semiconductors
Your $10,000 turned into $90,000
11.5% CAGR
Now we're talkin'. Did you foresee the boom in demand for semiconductors back in 2005? If you did, congrats on a great return on your initial investment. But there is still one asset class that beat semiconductors.
Software & Services
Your $10,000 turned into $105,000
13.2% CAGR
The Mother Load. It's true - software outperformed hardware over the last 20 years. If you were lucky enough (or prescient enough) to have invested $10,000 in Software & Services, you hit a home run.
There are many other asset classes out there, but very few can match the return of Software & Services. And what about the next 20 years? Where would you put your money today? Will Software repeat, or will someone come along like Bitcoin and lead the pack? Only time will tell.